The Institute for Supply Management, in its latest services industry Purchasing Managers’ Index report, reported that economic activity in the sector expanded in December, with the index improving to 54.4%, led by retail.
However, economic activity in the manufacturing sector continued to contract.
In looking at the main index components, Steve Miller, chair of the ISM Services Business Survey Committee, pointed out, “The Business Activity Index continued in expansion territory in December, registering 56%, 1.5 percentage points higher than the reading of 54.5% recorded in November. The New Orders Index also remained in expansion in December, with a reading of 57.9%, five percentage points above November’s figure of 52.9%. The Employment Index expanded for the first time in seven months with a reading of 52%, a 3.1-percentage point improvement from the 48.9% recorded in November, the fifth consecutive monthly increase since a reading of 46.4% in July. The Supplier Deliveries Index registered 51.8%, 2.3 percentage points lower than the 54.1% recorded in November. This is the 13th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Supplier Deliveries is the only ISM PMI Report index inverted; readings above 50% indicate slower deliveries, which is typical as the economy improves and customer demand increases.
“The Prices Index registered 64.3% in December, its lowest level since a reading of 60.9% in March 2025,” Miller indicated. “The December figure was a 1.1-percentage point drop from November’s reading of 65.4%. The index has exceeded 60% for 13 straight months. The Inventories Index registered 54.2% in December, an increase of 0.8 percentage points from November’s figure of 53.4% and in expansion territory for the second month in a row. The Inventory Sentiment Index expanded for the 32nd consecutive month, registering 54.1%, down 0.7 percentage points from November’s figure of 54.8%. The Backlog of Orders Index was in contraction territory for the 10th month in a row, registering 42.6% in December, a 6.5-percentage point decrease from the November figure of 49.1%.”
He pointed out that the December services PMI reading of 54.4% is 2.7 percentage points above the 12-month average of 51.7%. Still, the 12-month average has continued at its lowest level since August 2024 for the third consecutive month.
“December’s Services PMI is a continuation of a downward trend of more than 10 percentage points in the 12-month average since February 2022, when it was 62.6%,” Miller maintained. “In an encouraging sign, the PMI readings in November, 52.6%, and December are in line with the same months in 2024: November 52.5%, December 54%. Also, for the first time since February 2025, all four PMI subindexes are in expansion territory. Tariff impacts and seasonality were common themes among panelists’ comments. The Employment Index returned to expansion for the first time since it registered 50.7% in May 2025. The Prices Index figure, 64.3%, is 1.8 percentage points below the 12-month average of 66.1%. Respondents frequently mentioned impacts related to the holiday season and activity increases related to end-of-year activities or preparation for 2026.”
The 11 service industries reporting growth in December were Retail Trade, Finance & Insurance, Accommodation & Food Services, Transportation & Warehousing, Arts, Entertainment & Recreation, Mining, Health Care & Social Assistance, Information, Wholesale Trade, Public Administration and Utilities. The industries reporting contraction in the month were Management of Companies & Support Services; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Educational Services, and Construction.
Economic activity in the manufacturing sector contracted for the 10th consecutive month in December, following a two-month expansion after 26 consecutive months of contraction. The Manufacturing PMI registered 47.9% in December, down 0.3 percentage points from 48.2% in November and the lowest reading of 2025. The overall economy continued to expand for the 68th consecutive month, following one month of contraction in April 2020. A manufacturing PMI above 42.3% over time indicates overall economic expansion.
The manufacturing industries reporting growth in December are Electrical Equipment, Appliances & Components, and Computer & Electronic Products. The industries reporting contraction in the month are Apparel, Leather & Allied Products; Wood Products; Textile Mills; Paper Products; Chemical Products; Printing & Related Support Activities; Nonmetallic Mineral Products; Petroleum & Coal Products; Primary Metals; Miscellaneous Manufacturing; Plastics & Rubber Products; Fabricated Metal Products; Machinery; Food, Beverage & Tobacco Products, and Transportation Equipment.
